How To Choose the Right API Business Model

by Spencer Nguyen • January 25, 2022

The API economy is growing rapidly. According to research by Coleman Parkes enterprises were twice as likely as their peers to be confident they are differentiating themselves by using Application Programming Interfaces. The same report showed that companies with advanced API management processes experience up to 47 percent better business results than those with basic API management. That said, developing an API business model is critical for any company that wants to remain relevant and stand above the competition. Here, we’ll help you decide on the right API business model to get you started on gaining the edge over your competition.

API Business Models

According to Forbes “Across almost every industry, companies are adopting a digital business strategy to increase the velocity of their business, streamline processes and deliver a better overall customer experience. Digital is all about the software; in 2021, modern software is created using APIs.” Salesforce Research shows that 56 percent of customers actively make a point of buying from the most innovative companies.

That said, many companies' primary goal is to "future proof" their organization. Companies are looking for ways to remain relevant and competitive. That means most leaders are getting up to speed quickly and putting together a business plan for how to move towards an API-first architecture. However, this will require thinking about how they want their company's business enabled by technology in the short-, medium- and long-term future. An API business model defines how the company will turn its APIs into profit-making assets to meet those goals.

API as a Product

The simplest form of monetization when it comes to a business model is treating the interface like a product and charging for use. This category implies that the API has a goal of generating profit for the company. For this model to be successful, it must provide value, be easy to monetize and provide something unique.

Another way to earn more income is by upselling or offering additional features. This approach often occurs in freemium versions of API services that have basic features. Companies that do this will need to persuade their customers the extra piece is worth paying for.

API as a Marketing Tool

In this API business model, the Application Programming Interface itself is not a monetized service but rather a marketing tool. The API is a free entry point to the rest of your ecosystem. It is the equivalent of a free demo. In this model, the interfaces are secondary means of monetization. What makes them unique is that the value comes not from the interfaces but instead from the business that's facilitated by them. DreamFactory’s API management platform can help you build impressive APIs to showcase your offering.

Co-Branded Partnership APIs

Application Programming Interfaces can help businesses make money by offering new opportunities to partner with other companies. A business's profit does not come from providing data on its own; rather it comes from handling the data of other enterprises. This type of business-to-business (B2B) arrangement may be beneficial in building trust among customers and within an industry.

What API Business Model Is Right For You?

There are several factors in determining which API business model is right for your company. The first step is to define the target audience. The target audience plays a huge role in determining a suitable business model. Will the API serve small businesses? Large corporations? Companies in a specific industry or vertical? Identifying the target audience will help pinpoint what that audience needs.

The next step is to determine the value in the Application Programming Interface. In other words, what will the customers find beneficial about it? Here are a few items to consider:

Do For Them What They Can Not Do For Themselves - Developing an Application Programming Interface requires overhead that many companies simply can’t afford or don’t want to take on. It also requires specialized knowledge to develop the solution they need. Developers, QA testers, development environments, and hosting are just a few expenses companies want to avoid. It can also be too time-consuming to develop one without the proper knowledge. Providing them an Application Programming Interface saves them time and money. They can simply use the API and get started using the functionality right away. Using DreamFactory’s robust Application Programming Interface, you can easily create interfaces that provide value to your customers.

Make Them Wealthy - In the age of digital transformation, companies are constantly looking for ways to gain a competitive advantage. They can use a third-party Application Programming Interface to build on and expand their product offering to provide customers with something new and unique.

Save Them Money - Companies are constantly looking for ways to save money and maximize revenue. The API business model should be built around providing a solution that saves customers money. As an example, they may want an API they can use to find and compare prices for inventory items from their supplier.

About DreamFactory

APIs can form a company’s core business model or serve as an opportunity to create a new income stream. An API business model defines the monetization strategy to leverage this valuable asset. Selecting the right approach can be a daunting task, but with the right resources on your side, you’ll be able to come up with a solution that’s right for your business.

Interested to learn more about how DreamFactory can help spearhead your adoption of microservices architecture? Start your free trial!